Estate Planning, Charitable Remainder Trust

When I listen to my team members talk about high school and pending deadline for their child’s choice of college, it is scary. They talk about having to spend $30, $40 or $50 thousand for a year of college and hope that their child can earn a scholarship to help alleviate some of the burden. My parents had to be concerned with paying 10% of those numbers for my college education. But, I guess it is all relative!

For those of you who have a charitable intent, establishing a scholarship through a charitable remainder trust today is something you should think about.

What is a charitable remainder trust? A charitable remainder trust is a way of dividing your wealth between individuals and charitable beneficiaries. For Individuals, such as you and your spouse and/or other family members, you are able to receive a current distribution based upon a certain percentage of the market value of the charitable remainder trust. The trust may last for a set number of years, or for the life of an income beneficiary, or for the joint lives of more than one beneficiary. When the trust finally ends, the charity receives all the remaining assets.

Usually distributions from the trust are determined by one of two methods. One method is called a charitable remainder annuity trust, meaning a specific dollar amount is paid every year to the income beneficiary, regardless of what happens in the financial markets. The other common method is called a charitable remainder unitrust, from which a specific percentage of the trust’s value is paid out each year. The advantage of the unitrust is that the amount of the annual distribution can go up over time so long as the value of the trust assets goes up. That offers the possibility of inflation protection. However, if in any one year the market value drops so does the distribution.

Income and gift tax charitable deductions are available when the charitable trust is funded. The charitable deduction is also age based. Another important benefit is tax-free diversification of concentrated holdings when gifted to the Charitable Remainder Trust. When an appreciated asset is transferred to the charitable trust, the tax deductions are determined by full fair market value. If the trust sells the asset, there is no tax on the capital gain—in effect; the capital gains tax is forgiven. There are numerous benefits to establishing a charitable reminder trust. Speak with an estate planning or elder law attorney about CRT’s.

In past years I wrote about a couple I worked with for many years. They had no children and they were charitably inclined. In their estate plan they established a Charitable Remainder Unitrust that established scholarships for students graduating from Manchester Township, NJ high school. We converted the CRT to a trust in perpetuity. This year we are awarding almost $80,000 in scholarships to the graduating class of 2017 in the name of C. Edward and Helen Enroth.

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About Ira Brower

I have been in the financial service industry for more than 40 years primarily providing wealth management solutions for retired and soon-to-be retired individuals. I am President and Founder of Garden State Trust Company. Our clients depend on us for elder care solutions, such as; trust and estate planning, investment services, and lifestyle management. We also administer to “special needs” or “supplemental needs” trusts. www.gstrustco.com

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